Referral Marketing – Does it work?

I have been doing some research on referral marketing for a client. Their business is a B2C (business to consumer) organisation that has over 600 customers on their database. They service over 50 of those customers on a monthly basis. Where does most of their business come from? The Yellow Pages Directory of course. But, the next best source of business comes from referrals by existing or past customers. So, we decided to look in to a system that would drive new business from the existing database. The answer in this case, is a referral system. Now, keep in mind that in order to gain maximum benefit from a referral system, you have to achieve very high levels of customer satisfaction. No customer is going to refer your business to someone else if they are dissatisfied, quite the opposite in fact. We did a customer satisfaction survey first and established that this business had a fantastic level of customer satisfaction.  Luke Matthews – Sustainable Operations Management. http://www.somconsulting.com.au

The referral system is basically a regular contact with your existing and past customers, ensuring your company stays at the fore-front of their mind. This regular communication comes in various formats but could be as simple as a postcard with your brand on it. The thing that will make this work is the customer who refers the business to a friend or colleague puts their details on the back of the card and passes it on. The person who receives the referral provides that card to you and you send some sort of reward or gift to the referer.

To make this work, a reward for referring is vital. People may not go to the effort of filling in the card and passing it on if there’s no incentive to do so. People love free things and often go to lengths to get them. And, at the end of the day, how much does it normally cost you to acquire a new customer? Hundreds or thousands of dollars? So a $20 voucher is a much more cost-effective method isn’t it? Of course it depends on what your average sale value is too.

In an environment where a substantial amount of business is conducted on a referral basis, this seems to be a winner. So, my conclusion is that referral marketing is a viable method of acquiring new business. And, there are automated systems out there that make it easy to do.